Question

Between simple interest at 8% and compound interest at 9%,
find the higher resulting balance after investing $500 for a
period of 10 years. Round the answer to two decimal places.

Answer 1

To compare the resulting balances, we need to calculate the amount after 10 years for both simple interest and compound interest.

For simple interest, the formula is:
Amount = Principal * (1 + (Rate * Time))

For compound interest, the formula is:
Amount = Principal * (1 + Rate)^Time

Using these formulas, let's calculate the resulting balances:

For simple interest:
Principal = $500
Rate = 8% = 0.08
Time = 10 years

Amount = 500 * (1 + (0.08 * 10))
Amount = 500 * (1 + 0.8)
Amount = 500 * 1.8
Amount = $900

For compound interest:
Principal = $500
Rate = 9% = 0.09
Time = 10 years

Amount = 500 * (1 + 0.09)^10
Amount = 500 * (1.09)^10
Amount ≈ $1,316.97

Therefore, the higher resulting balance after investing $500 for a period of 10 years is approximately $1,316.97 (compound interest).